Compensation

The compensation is intended for active members whose future pension accrual will suffer a negative impact from the switch to the new pension plan. We have calculated that this affects active members who are between the ages of 40 and 68 when we make the switch, i.e. members in that age bracket who are accruing a pension with Philips Pensioenfonds on 1 January 2027. The reason why the future pension accrual could suffer a negative impact is that pension accrual is not the same under the new pension plan. The employers and the unions (management and labour) have agreed on this compensation system to help make the transition balanced for all the groups of members. Under this arrangements, members who are eligible for the compensation will receive an extra one-time payment into their pension capital when we switch to the new pension plan. 

Under the Philips flex pension plan, the contributions paid are the same for all members. They all accrue pension at the same rate (1.85%). Since younger members have more time until their retirement, their contributions have longer to generate returns than the contributions for older members. The contributions for younger members could be lower, then, to reach a 1.85% pension accrual. For older members to achieve that same 1.85% accrual, on the other hand, their contributions need to be higher. Even so, the contributions are the same for all members under the existing plan, and part of the contributions for younger members is used for the pension accrual of their older colleagues. This is not a problem as long as the existing pension plan continues: as the younger members grow older, they benefit in the same manner.

Unlike the situation described in the previous paragraph, under the new pension plan each member accrues a separate pension from the same contributions. Those contributions are added directly to the member’s personal pension capital. In pension jargon, ending this situation is sometimes referred to as ‘abolishing the averaging method’. This works to the advantage of younger members: for much of their career, their contributions will go towards their own pension savings. Active members between the ages of 40 and 68 (when we make the switch) have not had the same benefits of the existing system with younger members paying towards their pension accrual. These members are also too old to benefit from the new system where everyone’s contributions are the same. This means that the future pension situation of members in the 40-68 age bracket who are accruing a pension with Philips Pensioenfonds will suffer a negative impact when we switch to the new pension plan. 

To remedy this, the employers and the unions have agreed to make an extra one-time payment into the personal pension savings of the members who are affected, i.e. active members between the ages of 40 and 68.

Essentially, the compensation works as follows:

• The compensation will be provided to all active members (including members with non-contributory pension accrual due to disability) between the ages of 40 and 68 at the moment of the transition (1 January 2027). 
• When we switch to the new pension plan, those members will receive an extra one-time payment into their personal pension capital. This will give them a higher pension when they reach retirement age than they would have without the compensation.
• If Philips Pensioenfonds has a funding ratio of 106% or higher when we make the switch, the compensation will be paid entirely from the pension fund’s assets. If the funding ratio is lower, it will be impossible to pay the compensation entirely from the pension fund’s assets, and some or all of it will need to be financed from the pension contributions.

Based on the compensation system, the transition effects for active members in the 40-to-68 age group will be similar to the effects for the other age groups. This means that the compensation system will help to ensure a balanced transition for all the member groups.

The transition plan drawn up by the employers and the unions describes how the compensation system will be given shape. The Board of Trustees of Philips Pensioenfonds has reviewed the compensation system, and agrees with the employers and the unions that it will help to ensure a balanced transition. Even so, it is not final yet. Ultimately, the Dutch central bank (DNB), as our supervisory authority, has to give us approval to convert the accrued pensions to the new pension plan. The compensation system is part of the arrangements to make sure that the conversion is balanced. We have to submit a large number of documents (including the implementation plan and a conversion template), which that supervisory authority will study before deciding whether it can give us approval. Reviewing all those documents, a process that is referred to in practice as ‘reviewing the conversion request’, is labour-intensive, and we are working on the assumption that it will be 2026 before we know whether or not we have DNB’s approval. Only when the supervisory authority has given its approval will we know whether we can carry out the compensation system in its contemplated form.

How much compensation you will receive is impossible to calculate until we switch to the new pension plan. We will send you personalised information near the end of 2026. The transition plan includes a diagram that gives an idea of how much your compensation will be; however, it is not definite yet whether we can carry out the compensation system as described in the transition plan. We have to wait for the Dutch central bank (DNB), as our supervisory authority, to approve the arrangements that have been made (see ‘Is the compensation system final?’). 

The employers and the unions have asked Philips Pensioenfonds to finance the compensation from the pension fund’s assets at the moment of the transition, if and in so far as the funding ratio allows (i.e. if it is approximately 106% or higher). If the funding ratio is lower, some or all of the compensation will need to be financed from the contributions. If this situation materialises, the employers and the unions will make further arrangements about how to handle this. 

If part of the pension fund’s buffer is used to finance the compensation for members in the 40-68 age bracket, this will leave less money to share among the other members’ personal pension capitals. That is why the Board of Philips Pensioenfonds has carefully reviewed the compensation system as part of the overall transition. The arrangements under the transition plan have been given careful scrutiny to see whether, as a whole, they will ensure a balanced transition for all our members. With this particular group of active members accruing less pension under the new pension plan than they would under the existing plan, the Board’s opinion is that paying the compensation from the pension fund’s assets will help to ensure a balanced transition for all our members. Based on the compensation system, the transition effects for active members in the 40-68 age bracket will be similar to the effects for the other age groups.

Under the new pension plan, younger members will not be paying towards the pension accrual of older members. Instead, more of their contributions will go into their own personal pension capital. This means that the new plan works to the advantage of younger members: for much of their career, their contributions will go into their own pension savings where they will generate returns. However, members aged 40 and up will not have enough time to benefit from the new pension accrual method under the new pension plan. The compensation is intended for those members. They need the compensation because without it their pension is projected to be lower under the new plan.

If your employment ends, for whatever reason, before we switch to the new pension plan on 1 January 2017, you will not receive the compensation. The purpose of the compensation is to make up for a future negative impact on the pension accrual with Philips Pensioenfonds by members between the ages of 40 and 68. If your employment ends, you will not be accruing a pension with us anymore, and the new way of accruing a pension will not have a negative impact on your pension with Philips Pensioenfonds. 

If you accrue a pension with a new employer, you might be entitled to compensation there. However, this depends on your new employer’s arrangements for switching to a pension plan under the Future Pensions Act. It is important to ask your new employer about this: if your new employer does not offer any compensation, or not as much, under the new pension plan, you could find yourself with a lower total pension. 

If you take early retirement before we switch to the new pension plan on 1 January 2017, you will not receive the compensation. The purpose of the compensation is to make up for a future negative impact on the pension accrual under Philips Pensioenfonds’s new pension plan. If you retire, you will not be accruing a pension with us anymore, and the new way of accruing a pension will not have a negative impact on your pension with Philips Pensioenfonds.

If you are considering taking early retirement around 1 January 2027, it could be best to push it back until after 1 January 2027 so that you will be entitled to the compensation. One of the factors determining the amount of the compensation is your age when we switch to the new pension plan, so we recommend finding out as much as you can before you decide on your retirement date. Ask our Service Desk for information.

When we switch to the new pension plan, the compensation will be added as a single amount to the personal pension capitals of members aged between 40 and 68 who are accruing a pension with Philips Pensioenfonds. If you join one of our participating employers after that date, you will not be entitled to the compensation. If you were working for another employer before 1 January 2027, you might receive compensation there. However, this depends on what arrangements your previous employer has made for when it switches to a pension plan under the Future Pensions Act. If you miss out on compensation as a result of switching jobs, you could find yourself with a total pension that is lower than if you were eligible for the compensation. It is important to inquire with your current/former employer.

The compensation is intended to make up for a potential negative impact on the member’s future pension accrual with Philips Pensioenfonds. The reason for it is that the pensions will be accrued using a different method in the future, so it does not matter what the member’s history with Philips Pensioenfonds is, or how many years they have accrued a pension under the existing pension plan.

Yes, solidarity between younger and older members is expected to still exist in most pension schemes, but less than in the current system. The so-called longevity risk (see question 22) and the death and disability risks continue to be borne jointly. 

From now on, however, there is no longer any question of age solidarity with regard to pension accrual. From now on, every participant with the same salary will receive the same premium paid into his pension pot. A young person can accrue more pension with this premium than an older colleague. In the current pension system, both young and old accrue the same pension. In fact, a young person contributes to the pension accrual of his or her older colleague. That is no longer the case in the new pension system.

In the new pension system, the investment return directly benefits the participant through his or her personal pension pot. The pension therefore becomes more personal. More personal means that there is less solidarity on this point as well. And because there is less solidarity, pensions will also move more directly with the economy. Whether or not you see this as a positive development depends on how much you value certainty about your pension benefit. Moreover, the movement of a pension that has commenced with the economy is dampened by spreading financial windfalls and setbacks over 3 years. In fact, this can also be seen as a form of solidarity between generations.

Moreover, the movement of an entered pension with the economy is dampened by spreading financial windfalls and setbacks over 3 years. In fact, this can also be seen as a form of solidarity between generations.

The solidarity between generations is also given shape via the so-called solidarity reserve. The pension recipients at Philips Pension Fund are protected against disappointing (investment) results. This reserve is filled at the start of the new pension scheme from the buffer of the Pension Fund and then by a limited deduction from positive (investment) results of the pension recipients and the other participants from the age of 55. You can receive a supplement to your pension from the solidarity reserve if your pension (without reserve) should be reduced. The condition for this is that there is sufficient capital in the solidarity reserve.

By law, pension funds have to provide proper compensation for the negative impact of abolishing the averaging method. However, the law does not dictate how to calculate that impact, how to determine the age where a negative impact begins, or what ‘proper compensation’ means exactly. The legislature has left it to management and labour (i.e. your employer and the employee representation body) to decide on the arrangements. 

The details of the compensation were recorded in the transition plan. Next, the Board of Trustees of Philips Pensioenfonds conducted its own review, independent from the employers and the unions, to see whether all the arrangements together, including the compensation system, are balanced for all groups of the pension fund’s members. 

For every pension plan in the country, employers and unions are making similar arrangements. Those arrangements will vary from one pension administrator to the next, depending on the existing pension plan and what criteria the employer and the unions use for deciding whether the compensation system is sufficient and properly balanced.

One of the premises when the Future Pensions Act was drafted was that any members suffering a negative impact from abolishing the averaging method should be properly compensated. One way to finance that compensation is from the contributions. However, the legislature expressly created the possibility of paying it from the pension fund’s assets. The employers, the unions and the boards of the pension funds were given the task of deciding on the matter and agreeing on the arrangements. 

When the employers and the unions at the companies participating in Philips Pensioenfonds drew up the transition plan, they explained how the compensation system works and how it will be financed. For example, they noted that if the compensation cannot be financed from the assets it would be necessary to lower the pension contributions. Lower pension contributions would only have a negative impact on existing and future active members. If the pension fund’s assets are sufficient to finance the compensation, they can be used to prevent the negative impact on one group. The Board of Philips Pensioenfonds has agreed to pay the entire compensation from the pension fund’s assets if the funding ratio is 106% or higher when we make the switch, as long as the employers and the unions make arrangements to finance the compensation (or at least part of it) if the funding ratio is lower. The employers and the unions have agreed.